Benefits Squeeze

04/19/03
By: Victoria R. Spagnoli, Daily Gazette

Not so very long ago, workers swarmed around office water coolers, enjoying coffee breaks. They chatted about their multiple weeks of paid vacation and what they were planning to buy with their Christmas bonus.

Now, as companies try to save money, perks such as bonuses, vacation and even coffee breaks are being dropped.

Paul Dorf, managing director of Compensation Resources Inc. in Upper Saddle River, N.J., said the economy is different in the post-9/11 world than it was five years ago. Companies are cutting back, cutting jobs and transferring more benefit costs, such as health insurance, onto employees.

“What has happened is that companies are taking a much different stance than they were in the past,” Dorf said. “If you go back four, even five years ago, there was a mad scramble to get bodies in the door. Companies were much more reluctant to do anything that would be deemed to be negative.”

But not anymore.

Almost every day there is news about companies asking executives to give back bonuses or take pay cuts and employees being told health-care co-pays are increasing or that they are losing coffee break privileges – which is what Orange County workers were told this week – in order for an organization to save money.

Wage Cuts

Recently, Glens Falls-based Finch, Pruyn & Co. announced 15 percent pay cuts for all salaried workers at the end of April in an attempt to cut costs.

Some of the hardest-hit workers are airline employees. Since 9/11, the airline industry has suffered major financial problems and many companies are looking to benefit decreases and pay cuts to help pull them out of or away from the verge of bankruptcy.

A six-year contract between United Airlines and its mechanics and aircraft cleaners calls for a 13 percent wage cut, new work rules and a 20 percent increase in health-insurance co-pay. United pilots will reduce their pay by 30 percent and other cuts are expected by changed work rules.

American Airlines pilots are facing $660 million in cuts, and flight attendants are facing $350 million in cuts – both including job losses.

A Value of Benefits Survey by the Employee Benefit Research Institute showed that in 2001 – the most recent information available – 77 percent of workers reported that benefits a prospective employer offers are very important in their decision to take a job. Employees also ranked health insurance as the most important benefit a company can provide.

The 2001 survey, given to 1,000 workers in November 2001, also showed that only 41 percent of employees are happy with their current benefits package. About 19 percent said they’d rather have more benefits and less cash, while nine percent said they’d rather have fewer benefits and more cash.

Diane Lustenader, with Lake Associates Inc. in Albany, said while workers may still get raises this year, when compared to increases in inflation, “employees are actually seeing a loss in their spending power.”

Merit raises are forecast to go up by 3.8 percent this year, she said, but inflation is expected to counter that by increasing 2.4 percent.

But things don’t seem to look as bad as you go up the corporate ladder.

“I think clearly when you go up the food chain, we’re not seeing the same dramatic changes with the executive group,” Dorf said.

Executives are getting less as far as bonuses and perks, but salaries are going up, he said. Bonuses are lower because profitability and performance is down, but target awards for executives are larger.

Executive Incentives

Companies are also giving executives restricted stock – an outright stock grant with strings, such being employed for a specific amount of time. “We’re not seeing restricted stock given down to the troops,” Dorf said. “They are, for most part, losing options they used to get.”

Kathy Simmons, chief operating officer and president of Netshare Inc., a subscription-based job-search service catering to the $100,000-plus executive, doesn’t agree with Dorf. She said there’s been a small decrease in executive base salaries as well as bonuses. She also said incentive bonuses are becoming a larger part of an executive’s overall compensation package.

Because companies are concerned with performance, many will give pay for performance incentives rather than a higher base salary, she said.

And, while almost anything is negotiable, not many people are dickering over benefits and bonuses. “My sense is that right now most [executives] are concerned with the job market in general and the health of their companies because it is taking longer to find a position than it did in the past,” Simmons explained. “Most people are not in the position to negotiate as much as they were in the past.”

This concern tends to override others that may affect lower-level workers, such as increasing health-care costs.

Benefit cuts

Increases in health-insurance premiums are affecting a majority of workers locally and across the nation. While many companies are still paying the majority health care for employees, the increases are being passed on to workers through rises in co-payments and insurance payroll deductions.

Lustenader, with Albany-based Lake Associates, said that for the past 10 years, a lot of companies have been paying around 40 percent of an employee’s base salary for total benefits. Even now, with costs rising, companies are still paying close to that 40 percent. For example, for someone with a base salary of $30,000, a company may pay an additional $12,000 in benefits, including health care, vacation and retirement contributions.

But, the way those benefits are delivered are changing, she said. Some companies allow employees to design their own benefit package or have flexible benefit dollars.

Lustenader said this year, however, is strange because “expenses for health insurance went up a lot this year.” “Some of them [companies] absorbed that cost, some of them shared that cost, and some of them went back and actually redesigned the package they are offering,” she said.

But, workers are still paying higher deductibles, higher co-pays and may face longer waiting periods before they can sign up for coverage. “That’s where it really hits employees,” she said.

Many companies are also dropping pensions or deferred payment plans, in favor of retirement plans such as 401(k)s where companies can match employee contributions. But even those company matches are dwindling, Dorf said.

“The whole point is that over the period of the last 20 years the financial support for retirement has been coming out of your pocket, not out of your employer’s pocket,” he said.

As business costs increase, it’s increasingly likely that employees – whether low man on the totem pole or a top executive – are going to see fewer bonuses and find themselves paying more for benefits they once enjoyed free of charge.